Saudis prepare for post-petroleum era

MEDINA, Saudi Arabia – Yellow dust clouds swirled as tractors moved back and forth, leveling a huge, barren piece of land dotted by billboards that announced the city that will rise here.

Over the next few years, Saudi officials say, this stretch of desert will be transformed into a hub of research and development, with cutting-edge universities, hospitals and housing for more than 130,000 people attracted to living in the city where Islam’s prophet Muhammad is buried.


The project, called Knowledge Economic City, represents a first serious step by Saudi Arabia toward building a post-petroleum economy. It is one of six industrial centers planned to rise over the next 15 years. At a cost of more than $100 billion, the sites are expected to provide housing and jobs for the country’s fast-growing population; half are younger than 21.

Cities-from-scratch are the most ambitious projects to date launched by a kingdom enriched almost entirely by oil since its disparate regions were unified more than seven decades ago. In beginning to construct an economy to survive the end of its natural resources, the Saudi government is drawing on lessons learned during a previous oil boom when profits were squandered in part by spendthrift princes and short-term planning that emphasized infrastructure over education.

“The ruling dynasty is under pressure to show its population that the oil money is being reinvested for the good of the people. The al-Sauds have suffered from the image of a ruling family as corrupt and spending lavishly,” said Rochdi Younsi, an analyst with the Eurasia Group, a consulting firm that provides political risk analysis of countries around the world.

With oil prices peaking above $145 a barrel in recent weeks, the kingdom is reaping an unprecedented windfall from its vast reservoirs, which represent a quarter of the world’s proven reserves. Saudi Arabia reported oil income of $200 billion last year and projects $700 billion in revenue over the next two years. The kingdom earned an average of $43 billion annually throughout the 1990s.

But Saudi officials have long feared that oil prices too high would push the world toward alternative fuels, a concern captured by one former oil minister’s tart reminder that “the Stone Age did not end for lack of stone.”

To meet rising demand, as well as to slow the world’s rush to develop alternative energy sources, Saudi officials have raised oil production by 500,000 barrels a day since May.

Though increased production means the Saudi reserves will be depleted faster, the government is using a burst of additional capital to develop an economy it hopes eventually will be untethered from the price of oil.

Waashington Post